Will IMF rescue the economic crisis-hit Pakistan? Here's what we know so far

The Pakistani government has received a memorandum from the International Monetary Fund (IMF) outlining the terms and conditions for the completion of a USD 7 billion loan programme, according to Finance Minister Ishaq Dar on Friday. However, he acknowledged that both parties have not yet reached a staff-level agreement on the desperately needed bailout for the cash-strapped nation, news agency PTI reported.

Dar made the remark after an IMF delegation, which left Pakistan on Thursday night following ten days of negotiations with the government, announced that virtual discussions on the ninth review of the programme will continue.

A crucial document known as the Memorandum of Economic and Financial Policies (MEFP) outlines all the requirements, procedures, and policy directives upon which the two parties declare the staff-level agreement.

The two parties talk about the proposed policy measures after sharing the draft MEFP. After they are completed, a staff-level agreement is signed and submitted for approval to the executive board of the International Monetary Fund (IMF).

From January 31 to February 9, an IMF team led by Nathan Porter was in Islamabad for talks related to the ninth review of the government's programme backed by the IMF Extended Fund Facility (EFF) arrangement.

Pakistan, whose foreign exchange has fallen below USD 3 billion, is in serious need of financial help.

The successful conclusion of the ninth review would bring USD 1.2 billion in the shape of the next tranche to the cash-strapped government.

As the visiting delegation left without issuing a final statement, there was some uncertainty about the conclusion of the negotiations and if a draft MEFP had been provided.

Dar, on the other hand, emphasised during a press conference on Friday that there was no confusion.

"We insisted that they (the Fund delegation) give us the MEFP before leaving so we could look at it over the weekend," he said, adding that the government and the IMF officials would hold a virtual meeting in this regard on Monday.

"I am confirming that the MEFP draft has been received by us at 9 am today (Friday)," he added.

"We will completely go through the [MEFP] over the weekend and will hold a virtual meeting with [Fund officials]. It will obviously take a few days." The finance minister acknowledged that reforms in certain sectors required by the IMF were in Pakistan's interest, criticising the previous Pakistan Tehreek-e-Insaf-led government for "economic destruction and misgovernance".

"It is necessary to fix those things," he said. "These reforms are painful but necessary." Dar, vowing to keep making efforts to ensure Pakistan completed the IMF programme, said: "It is a standard process which can neither be shortened and hopefully they won't extend it unnecessarily."

Following the completion of the evaluation, the country would get a USD 1.2 billion transfer in the form of Special Drawing Rights, according to the finance minister.

SDRs are IMF-created international reserve assets that are distributed to member countries to supplement existing government reserves.

Dar stated that taxes of 170 billion rupees would be imposed as part of the policy measures agreed upon between the government and the IMF.

However, he emphasised that the government will make every effort to ensure that the taxes would not directly impact the average man.

According to him, the government will draft a financial law or an ordinance to levy the taxes, depending on the scenario at the moment.

"Secondly, we will implement the agreed-upon energy reforms through the federal cabinet," he said. The main emphasis would be on minimising untargeted subsidies and bringing the "flow" in the gas sector to zero so that there was no addition to the circular debt.

Dar stated that the country's generation cost was roughly Rs 2-3 trillion, but only Rs 1.8 trillion was collected, resulting in an increase in either the circular debt or fiscal deficit.

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